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Republic of the Philippines

G.R. No. L-18208

February 14, 1922

THE UNITED STATES, plaintiff-appellee,

VICENTE DIAZ CONDE and APOLINARIA R. DE CONDE, defendants-appellants.
Araneta & Zaragoza for appellants.
Attorney-General Villareal for appellee.
It appears from the record that on the 6th day of May, 1921, a complaint was presented in the Court of First Instance of the city of
Manila, charging the defendants with a violation of the Usury Law (Act No. 2655). Upon said complaint they were each arrested,
arraigned, and pleaded not guilty. The cause was finally brought on for trial on the 1st day of September, 1921. At the close of the trial,
and after a consideration of the evidence adduced, the Honorable M. V. del Rosario, judge, found that the defendants were guilty of the
crime charged in the complaint and sentenced each of them to pay a fine of P120 and, in case of insolvency, to suffer subsidiary
imprisonment in accordance with the provisions of the law. From that sentence each of the defendants appealed to this court.
The appellants now contend: (a) That the contract upon which the alleged usurious interest was collected was executed before Act No.
2655 was adopted; (b) that at the time said contract was made (December 30, 1915), there was no usury law in force in the Philippine
Islands; (c) that said Act No. 2655 did not become effective until the 1st day of May, 1916, or four months and a half after the contract
in question was executed; (d) that said law could have no retroactive effect or operation, and (e) that said law impairs the obligation of
a contract, and that for all of said reasons the judgment imposed by the lower court should be revoked; that the complaint should be
dismissed, and that they should each be discharged from the custody of the law.
The essential facts constituting the basis of the criminal action are not in dispute, and may be stated as follows: (1) That on the 30th
day of December, 1915, the alleged offended persons Bartolome Oliveros and Engracia Lianco executed and delivered to the
defendants a contract (Exhibit B) evidencing the fact that the former had borrowed from the latter the sum of P300, and (2) that, by
virtue of the terms of said contract, the said Bartolome Oliveros and Engracia Lianco obligated themselves to pay to the defendants
interest at the rate of five per cent (5%) per month, payable within the first ten days of each and every month, the first payment to be
made on the 10th day of January, 1916. There were other terms in the contract which, however, are not important for the decision in
the present case.
The lower court, in the course of its opinion, stated that at the time of the execution and delivery of said contract (Exhibit B), there
was no law in force in the Philippine Islands punishing usury; but, inasmuch as the defendants had collected a usurious rate of interest
after the adoption of the Usury Law in the Philippine Islands (Act No. 2655), they were guilty of a violation of that law and should be
punished in accordance with its provisions.
The law, we think, is well established that when a contract contains an obligation to pay interest upon the principal, the interest
thereby becomes part of the principal and is included within the promise to pay. In other words, the obligation to pay interest on
money due under a contract, be it express or implied, is a part of the obligation of the contract. Laws adopted after the execution of a
contract, changing or altering the rate of interest, cannot be made to apply to such contract without violating the provisions of the
constitution which prohibit the adoption of a law "impairing the obligation of contract." (8 Cyc., 996; 12 Corpus Juris, 1058-1059.)
The obligation of the contract is the law which binds the parties to perform their agreement if it is not contrary to the law of the land,
morals or public order. That law must govern and control the contract in every aspect in which it is intended to bear upon it, whether it
affect its validity, construction, or discharge. Any law which enlarges, abridges, or in any manner changes the intention of the parties,
necessarily impairs the contract itself. If a law impairs the obligation of a contract, it is prohibited by the Jones Law, and is null and
void. The laws in force in the Philippine Islands prior to any legislation by the American sovereignty, prohibited the Legislature from
giving to any penal law a retroactive effect unless such law was favorable to the person accused. (Articles 21 and 22, Penal Code.)
A law imposing a new penalty, or a new liability or disability, or giving a new right of action, must not be construed as having a
retroactive effect. It is an elementary rule of contract that the laws in force at the time the contract was made must govern its
interpretation and application. Laws must be construed prospectively and not retrospectively. If a contract is legal at its inception, it
cannot be rendered illegal by any subsequent legislation. If that were permitted then the obligations of a contract might be impaired,
which is prohibited by the organic law of the Philippine Islands. (U.S. vs. Constantino Tan Quingco Chua, 39 Phil., 552; Aguilar vs.
Rubiato and Gonzales Vila, 40 Phil., 570.)

Ex post facto laws, unless they are favorable to the defendant, are prohibited in this jurisdiction. Every law that makes an action, done
before the passage of the law, and which was innocent when done, criminal, and punishes such action, is an ex post facto law. In the
present case Act No. 2655 made an act which had been done before the law was adopted, a criminal act, and to make said Act
applicable to the act complained of would be to give it an ex post facto operation. The Legislature is prohibited from adopting a law
which will make an act done before its adoption a crime. A law may be given a retroactive effect in civil action, providing it is curative
in character, but ex post facto laws are absolutely prohibited unless its retroactive effect is favorable to the defendant.
For the reason, therefore, that the acts complained of in the present case were legal at the time of their occurrence, they cannot be
made criminal by any subsequent or ex post facto legislation. What the courts may say, considering the provisions of article 1255 of
the Civil Code, when a civil action is brought upon said contract, cannot now be determined. A contract may be annulled by the courts
when it is shown that it is against morals or public order.
For all of the foregoing reasons, we are of the opinion, and so decide, that the acts complained of by the defendants did not constitute a
crime at the time they were committed, and therefore the sentence of the lower court should be, and is hereby, revoked; and it is
hereby ordered and decreed that the complaint be dismissed, and that the defendants be discharged from the custody of the law, with
costs de oficio. So ordered.
Araullo, C.J., Street, Malcolm, Avancea, Ostrand, Johns and Romualdez, JJ., concur.